The doomsayers will be wrong again
Keep learning, evaluating and looking forward, because the world will keep changing
A quick look around will remind us that life can change quickly — as we are experiencing in the coronavirus era. Nothing lasts forever, not even the virus, say the world’s leading epidemiologists. We certainly don’t, nor do businesses, or leaders, movements or political parties. It is important to remember this and evolve with the developments around us.
Financially, we will get into trouble when our solutions are designed for yesterday’s problems. This does not mean that our values and principles need to keep changing. We need to have a value system that anchors us so that we can evaluate everything from this base and look to the future. Then we need to live our lives based on the future we desire within the evolving environment.
This applies to our lives and the work we do. It especially applies to how we deal with our money and investments. Our assets, possessions and investments must be optimally geared to enabling our lives. To do this, figure out roughly what all your assets are worth, then ask yourself: if I had that money in my pocket right now, would I buy the same house, the same things or invest in the same investment portfolio I own today? Are they enabling or inhibiting the life I want to live?
Most of us don’t ask these questions often enough. We do not ask them because we hope things will not change or we think we cannot do anything about it. But that is not the case and we perpetuate the status quo — even when we know it is not optimal. Then, when change happens, we are stuck with solutions that make it harder to deal with the new circumstances.
History is littered with examples of this. In the 1920s it was thought the world had entered a new era that would bring permanent prosperity. The stock market crash of 1929 burnt many people so badly that they never invested in stocks again. A similar situation arose in the late 1960s, 80s, 90s, and then again in the global financial crisis of 2008. Those investors who suffered huge losses were scared of returning to the stock market. However, through every one of these periods the stock market has provided ample returns for those who regularly ask themselves that re-evaluating question.
An assessment of the local and global stock market performances over the past 90 years indicates that they have outperformed any other recognised investment alternative, over 10-year periods and longer. That includes inflation.
During the depression decade of the 1930s, economists developed intricate theories of how the economy would never again boom. The decade after World War 2 brought its own set of supposedly permanent problems. There was wide consensus that the world’s trading countries would never again sell enough to earn the income they needed. Years later this has proven to be shortsighted.
Only 25 years ago inflation was the problem that was here to stay. Oil prices were expected to rise exponentially with little effect on supply or demand. Though the period after the global financial crisis has been a tough time, those predicting the end have been proven wrong. The doomsayers now extrapolating for a post-coronavirus era using the world framework, will be equally wrong. Just as it will certainly bring challenges, so it will bring opportunities for those able to evolve their thinking.
Decisions that made investors money in the 1970s and 80s could have bankrupted them in the 90s had they not re-evaluated their positions. Likewise, decisions made one year, three years or five years ago may no longer be appropriate into the future.
Some of the changes the world is undergoing are as dramatic as the change the world experienced with the commercialisation of the motor car. The alternative before the car was a horse and buggy cart. Assuming in 1910 that you invested in the best horse and buggy cart business in the world, your investment would not have done too well over the next 10 years. Almost all of the horse and buggy cart businesses went out of business. To keep ahead of the curve you would have had to move with the times and invest in a motor company.
If nothing else, the Covid-19 pandemic has taught us to keep learning, evaluating and looking forward. The world has changed and will keep changing at an increasing rate. Without taking any unnecessary risks we need to start moving out of horse and buggy cart businesses into the motor car equivalent businesses of today.
So, keep asking the question: if I had the money in hand now that is tied up in ... (fill in the blanks), would I spend it in exactly the same way? If not, you should be looking to reallocate those funds to where you believe your money should be.
⦁ Bradley is CEO of Fiscal Private Client Services.
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